Stimulus Bodes Well For Indian Stocks

Just like in many other emerging and developed nations, economic growth in India seems to be slowing. As the European debt crisis and dwindling global growth has taken hold, the Indian economy has slumped to its lowest levels in over nine years.

Add this to massive outflows from the Indian capital markets and continued downward pressure on the Indian Rupee, and it's no wonder why stocks within the nation have sold off pretty heavily over the last few months. However, just like its BRIC sister China, the Indian government recently outlined a series of reforms and stimulus measures designed to ignite economic growth once more. For investors, those measures could be the catalyst needed to finally begin adding the emerging market superstar to a portfolio once again.

Growth Cut Roughly in HalfAccording to government data, the Indian economy grew at just 5.3% in the last quarter. That's a sharp slowdown from 9.2% growth in the last quarter of the previous year and represents the slowest growth rate over the last nine years. That metric was much weaker than expected.

Overall, government officials blamed conditions out of their control, including the euro debt crisis, for the recent slowdown. India's manufacturing sector also contributed to the poor performance. Indian industrial growth shrank 0.3% from a year earlier. Likewise, the agricultural sector grew just 1.7%.

This poor showing has prompted Prime Minister Manmohan Singh to pledge additional stimulus measures in order to revive growth in Asia's third-largest economy. The Indian government outlined a series of new port, railroad and road projects as well as adding additional power-generation capacity in the nation.

These various measures designed to expand industrial capacity across India come on the back of additional monetary measures. The Indian central bank recently signaled that it would cut interests to reduce borrowing costs. Furthermore, in order to help stabilize the weakening rupee, Indian officials are allowing more foreign ownership of corporate bonds and streamlining the process for retail investors to open rupee-denominated accounts.

Take a Bet on IndiaGiven the proposed stimulus measures, now could be a great time to add Indian stocks to a portfolio. After the continued slide in the rupee and weakness in the Indian stock market, shares are now trading for some compelling levels. There are around 60 firms in the Bombay Stock Exchange (BSE) 200 index that sport a P/E ratio of less than 10. Likewise, the entire Sensex can be had for just around a P/E of 15.91. That's not too expensive, considering India's long-term growth prospects.

With nearly $800 million in assets, the WisdomTree India Earnings ETF (ARCA:EPI) is the largest and most liquid fund that tracks the nation. The ETF provides access to 163 different Indian firms including stalwarts like Infosys (Nasdaq:INFY) and HDFC Bank (NYSE:HDB). The funds underlying index focuses earnings and profitability, rather than just traditional market-cap weightings. That's allowed it to outperform its next biggest rival, the PowerShares India ETF (ARCA:PIN). For investors looking for a more "concentrated" bet on the nation, iShares offers the iShares S&P India Nifty 50 Index (Nasdaq:INDY).

With much of the Indian stimulus plans focusing on picks and shovel projects, a bet on Indian infrastructure could be in order. The EGShares India Infrastructure (ARCA:INXX) offers a direct bet on the need for improving the emerging nation's roads, ports and electrical grid. Additional infrastructure building will also benefit India's natural resource producers. Base metals producer Sterlite Industries (NYSE:SLT) could be an interesting buy, as the firm is the largest producer of copper and zinc in the nation.

Finally, for those investors looking for a bigger margin of safety from their India investments, both the closed-ended India Fund (NYSE:IFN) and the Morgan Stanley India Investment Fund (NYSE:IIF) can be had for big discounts to the NAV. Those discounts are roughly 12.06 and 9.96%, respectively, and provide access to many of the same firms as the broad Indian ETFs.

The Bottom LineLike much of the world, economic growth in India is slowing. To that end, its government has recently outlined some preliminary measures to boost its industrial capacity and strengthen its economy. For investors, it could be the catalysts needed to finally light a fire under Indian stocks once more. The previous picks, along with the iShares MSCI India Small Cap make ideal ways to play the nation's future growth.

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.